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The fire on Danish shipping vessel, Maersk Honam, underscores the extent of damage that can occur on large shipping container vessels – both in human life (five crewmembers died) and in cargo damage. Maersk Honam declared General Average (GA) only a few days after the fire. Liverpool-based average adjuster Richards Hogg Lindley (RHL) set the salvage security in the amount of 42.5% of the CIF (cost, insurance and freight) value of the cargo and an additional 11.5% required as GA security. This means that a shipper with goods worth $100,000 in a container aboard the Maersk faces a combined General Average and salvage security bond bill of $54,000 to have the cargo released.

Just to recap, the principle of General Average requires all parties in a sea venture to proportionally share any losses under certain circumstances, which include when there is a fire on board, the ship gets stranded or grounded due to machinery breakdown, there is a stack collapse on board a container ship, the ship gets caught in heavy weather and some cargo on board the ship has shifted due to the heavy weather jeopardizing the stability of the ship, or any other life-threatening situation caused by natural or unnatural circumstance.

Now that the Maersk Honam is berthed at the Port of Jebel Ali, it has finally received its cargo discharge operations with the first containers having been cleared for onward transport. MSC, Maersk Line’s 2M partner, said, “The submission of the GA and salvage securities is a prerequisite for the cargo to be released from Jebel Ali. Following completion of the discharging operations, the containers identified as potentially damaged will undergo an inspection at Jebel Ali and relevant customers will be invited to be represented at a joint inspection. Containers that are identified as sound will be loaded at first opportunity to reach their final destination provided GA and salvage securities have been submitted, released, and confirmed by RHL.”

The Maersk Honam GA declaration serves to highlight the importance of Cargo insurance to address the risks of financial loss in the global supply chain. Most notably, cargo insurance will respond to the cost of GA security payments and facilitates a faster release of a shipper’s cargo.